Gas closure cuts into South32 coal

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Elevated gas concentrations in part of South32’s Illawarra metallurgical coal operation have forced the miner to downgrade guidance by at least 800,000 tonnes in FY17.

South32, the collection of businesses spun off BHP Billiton two years ago, told the ASX on May 10 that metallurgical coal production would likely be at least 10% lower than prior guidance of 7.9 million tonnes for its Illawarra Metallurgical Coal business.

The downgrade is the result of the forced shutdown of a pair of longwalls at the project, after elevated gas concentrations were recorded at Appin Area 7, on May 7.

Production at the Area 7 and Area 9 longwalls has been suspended until the miner’s investigation is completed.

Low inventory levels mean the miner is unable to make up for lost production.

South32 said all personnel were safely evacuated, and a revised forecast for FY17 production is expected in due course.

After closing at $2.73 on May 9, the miner’s share price dropped as low as $2.58 – down 5.5% – before rebounding to a $2.66 closing price on May 10, the day of the announcement.

The $2.58 low was South32’s lowest share price on the ASX since March 13.

One mining analyst reportedly told AFR the situation was not South32’s fault.

“This is not a reflection of management or management practices, this is a reflection of the mining area, the district and the challenges faced by those mines over the last four decades,” Shaw and Partners analyst Peter O’Connor was quoted as saying.

Other analysts are reportedly unimpressed with South32’s track record, however.